Wednesday, December 23, 2009

Is this any way to deal with the problem? 

Currently Venezuela is facing something of an energy crunch. Most of its electricity comes from hydroelectric plants and due to a drought they, or more specifically the huge Guri complex, are running low. Apparently the situation has become critical and large cuts in consumption of electricity need to be made.

Of course, there has been debate about whether this could have been avoided - that is, should electric generation capacity have been built up over the past years so that the shortages could have been avoided. I am not going to take a position on that as their are a lot of variables involved and it is not really clear to me if the problem could have been avoided.

However, what I do find very problematic is the government's response to the problem.

Faced with the need to reduce power consumption the government has ordered that businesses cut back on electric consumption by about 20%. They have also limited the hours that certain types of businesses, such as shopping malls, can draw power from the grid. So far so good.

But then it turns out that some businesses are being asked to sacrifice and cut back more than others.

Who is being asked to cut back more? Amazingly, Venezuela's steel and aluminum industry.

First a bit of background. Venezuela exports very little save for oil. But of the little else it does export, about $6 billion dollars worth per year, the bulk of it is aluminum and steel from the heavy industry region of Guyana (and no, essentially none of this industry was built by the Chavez government, it was all there before him).

So although it is overwhelmingly an oil producer Venezuela does have heavy industry which brings a few billion dollars more in revenues. You would think they would want it to expand, not shrink.

But apparently not. Turns out, that while shopping malls have to cut back a bit on power consumption the aluminum and steel industries are being told to cut drastically and will drop their output by 40%.

This is simply insane. Manufacturing in Venezuela is already in big trouble as it most recently declined by 9%. Now one of the very few wealth generators the country has his going to be hit even harder, likely losing the country hundreds of millions, or even billions, of dollars.

And its not as if they don't have alternatives.

For example, the restriction on shopping malls forcing them not to use power before 11 am or after 9 pm is a joke - the malls are generally closed, or in the process of closing, outside of those hours anyways. If its truly an emergency the government should just tell them they have to run their own generators and they can't draw power from the national grid - period. It's not a nice thing to do but if confronted with a crisis it is much better to cut back this type of consumption than what industry gets.

Further, all stores could be restricted to operating only very limited hours each day or even be forced to be closed for several days per week. That is, if you want to shop in the Sambil do it on Tuesday, Thursday or Saturday because it is closed other days. The same could be done with most all commercial establishments.

Similarly, evening sporting events could be banned, non-essential street lights could be turned off, and air-conditioned buildings could have their temperatures raised to name but a few examples of what could be done.

The point is, if you have to make some big sacrifices, which Venezuela probably does have to do, you want to do it in non-critical and non wealth generating sectors.

In a poor country that is supposed to be trying to develop manufacturing should be a protected sector that gets preferential treatment.

Yet in Venezuela shopping centers get preferential treatment while the little industry the country has gets screwed.

Yet one more bit of evidence that the Venezuelan government has no well thought out plans to develop the country.


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